In the earliest days of the Federal Reserve, it was common practice for the various branch administrations to hold direct communications not just with the banks in those respective districts but also individual firms. The reasoning was sound enough, given that in the 1910’s and 1920’s there weren’t yet the kind of economic statistics that today litter the media landscape. Policy was written on anecdotes.

In some ways it still is. The central bank produces what is known as the Beige Book, a compendium of individual stories gathered from among conversations with firms in each of the branch districts. It was originally known as the Red Book, named in both versions for the color of its printed cover. In 1970, the Red Book was meant to replace longstanding FOMC tradition. To streamline the length of policy discussions, not that it helped either way in 1970, the various Fed branch presidents would submit in writing what was previously an oral report of these anecdotes.

Fed officials today still refer to the Beige Book quite often in their discussions, though from a truly objective point of view it isn’t at all clear why they should. It is notorious for getting things wrong, and often very wrong. Perhaps that is because any anecdotal report filtered through the bureaucratic apparatus in any official setting will become by nature an echo chamber. The various Fed presidents will do what is perfectly corrosive, which means they will select stories or conversations they have had that best reflect their own beliefs and biases. If the Fed presidents are all wrong, as they have been, the Beige Book will necessarily follow, not lead.

What is interesting about the latest one is that it speaks about the hot topics of the day – wage inflation and drug addicts. The former remains absent even though for almost three years the unemployment rate suggests inflation should have exploded long before now. The latter is, of course, the latest excuse for why wage acceleration is supposed to happen but for three years hasn’t.

Attracting qualified applicants for low-skilled manufacturing jobs is difficult, and many newly hired workers prove to be unreliable. That said, competition for low-skilled workers is strong and is driving up starting wages…


Contacts in the hotel industry noted widespread strong upward wage pressure for all positions, with one contact reporting plans to raise workers’ wages. Recent changes in immigration policy created substantial labor supply shortages for low-skilled workers in the agriculture sector; as a consequence, some growers discarded portions of their harvest. Several contacts observed that applicants for some low-skilled positions did not meet the minimum job requirements or were unable to pass pre-employment screenings such as drug tests.

The Beige Book is rife with individual reports of a labor shortage. Imagine that. The issue is not one then of economic science but political projection.

In March 1999, the Minneapolis Fed produced a quasi-study on the Beige Book, reaching largely these same conclusions. You need look no further than the title of the article to understand what it was saying, The Federal Reserve’s Beige Book: A Better Mirror than Crystal Ball.

An analysis by researchers at the Federal Reserve Bank of Minneapolis suggests an answer to the first question: While the gathering of regional information for the Beige Book provides value to the FOMC as a reflection of the economy, the national summary based on the compilation of regional reports does not improve upon private sector forecasts. Consequently—because the Beige Book does not improve upon private sector forecasts, and because the FOMC looks at an array of forecasts and national indicators, and Board staff generates its own forecasts—the Beige Book is not a good indicator of the future course of monetary policy.

It may not tell us what the Fed will be doing, but it has been reliable in telling us how the Fed deludes itself into doing whatever it eventually does. Read the Beige Books for all of 2007 and marvel at the false impressions. The June 2007 version, right on the very precipice of the economic cliff, reads as if the world was perfectly normal. 

Consumer spending and retail sales were generally up in late April and May [2007], with a number of Districts reporting that luxury items were selling better than lower-end merchandise. On net, there was little change in auto sales across the Districts, and dealers are about evenly split on whether there will be any pickup in sales over the summer.

Even in talking about real estate, it was like nothing then already filling the mainstream media was occurring, this eerie tendency toward the impenetrable intellectual bubble.

The real estate and construction industries were marked by continued weakness in the residential sector and increasing strength in the commercial sector. Most Districts characterized their housing markets as soft or weak… There was widespread improvement in commercial real estate markets in recent months. More than half the Districts reported that leasing activity was picking up in most of their major markets and vacancy rates were falling.

You would think that being a compendium of conversations gathered by Federal Reserve officials that it would be full of concern and worry coming from those taken with bank managers. Nope. Loan growth especially commercial was reported to be solid, and in only three of the twelve districts was anything mentioned about higher mortgage delinquencies. Just a normal month in a normal economy in Greenspan’s Great “Moderation.”

The fact that monetary policy proceeded from that kind of perspective does give us insight into its complete failure thereafter; failure that continues to this very day even though that particular Beige Book was published two weeks less than ten years ago. The latest one is simply the FOMC carrying on the same grand tradition of intellectual rigidity, lack of insight, and a dogmatic approach to their duties.

Federal Reserve Governor Lael Brainard yesterday expressed concern over what was really trivial, at least in the sense that it was the least surprising result in all of the world economy. The PCE Deflator decelerated for the second month in a row, having pushed above 2% just the one time (February 2017) in the last 60 months. To be surprised by that is to be not paying attention, which is what the Beige Book actually shows us.

Brainard’s remarks underline a puzzle facing the U.S. central bank. Joblessness has fallen to a post-crisis low and consumer confidence is strong, yet price pressures have cooled, which could make the Fed’s coming discussions more complicated

It’s simply not a puzzle. It is anecdotes compiled in the media as well as things like the Beige Book that are attempting to complicate what is utterly simple and straightforward. The economy shrunk in 2008 and 2009, but because that would reflect very poorly on policymakers who claim such a thing just isn’t possible, they have to resort to these types of pretzel contortions of logic and sense just to make it seem they have a plausible (sounding) handle on how the economy could be this way. Better to point the finger at heroin addicts than admit the whole condition these past ten years has been monetary in nature.

Or that oil prices did just in base effects what four QE’s never could.

What the Beige Book really says is to confirm what I wrote last August. The Fed up until last summer had remained steadfast to both QE and recovery even throughout “global turmoil” and a serious economic downturn, the consequences of the “rising dollar” that afterward finally convinced them of those mistakes. Rather than use the lesson to learn and grow in honest fashion, officials instead are attempting to be moved as little as possible. QE didn’t fail, the Beige Book claims, it was thwarted by you pitiful American laborers who can’t pass a drug test, a basic math challenge, or get off your ass to do anything productive. It really is as offensive as that characterization I just wrote. 

And so:

There is a world waiting to be rebuilt and a growing realization from even the most recalcitrant orthodoxists, those stubborn elite who denied all this for decades, that such a job is going to get done. We are moving past “if” and finally toward “when.” They are not interested in litigating past liability, only ensuring that they have a voice in that outcome. That should never happen; they had their chance, squandered it, and proved themselves unfit for the huge task ahead that was left to us by nothing more than Lord Acton’s axiom about power corrupting. A republican democracy needs no such people in positions of influence. They couldn’t be trusted to do what was right, and now we are left still to tally the costs of such blatant immorality.

The last ten years of global depression are the consequences of these empty suits who actually believed they controlled the global economy by every six weeks raising or lowering an irrelevant money market rate a quarter point at a time. Is it any wonder they had no idea what was coming? That it took ten whole years for them to finally realize “something” happened means that if allowed it might take another ten just for them to maybe figure out what it really was. And it wasn’t ever in the opioid family.

Print Friendly, PDF & Email